Small medium engineering enterprises and e business: executive summary

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SMALL-MEDIUM

_ENGINEERING

ENTERPRISES AND E-BUSINESS

Executive Summary

Submitted in Partial Fulfilment for the Degree of Doctor of Engineering

Nikolaos Armoutis

THE UNIVERSITY

OF

WARICK

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ENGINEERING SMEs AND E-BUSINESS EXECUTIVE SUMMARY

ABSTRACT

A preferred methodology for handling increasing customer demands and the resulting complexity is to design common modules or subsystems. The design of all the modules required by a complex system, such as a car, aeroplane or computer, is increasingly a task beyond the organisational resources of the OEMs and their close suppliers. Therefore, a

larger burden is transferred down the supply chain. As a consequence, lower tier suppliers are required to play a more proactive role and demonstrate an appropriate breadth of skills and resources in order to provide complete sub-systems. This research focuses on collaboration and e-business for a solution which will enable engineering SMEs to respond to such challenges and undertake higher value projects. In particular, the aim of this

engineering doctorate is to develop and implement a mechanism that puts together combinations of SMEs with the required capability, within an e-business environment.

Accounting for 99.3% of all manufacturing companies and 50.8% of the total employment, SME prosperity and `well-being' has significant impact on the national economy. Analyses, such as these provided by KPMG and PriceWaterhouseCoopers, indicate that the demand for common components could substantially reduce the number of small manufacturers and subcontractors. Statistics published by the Office of National Statistics

(ONS) confirm the decline of the sector, a reduction of over 22% in overall sector turnover has been reported in the past two years.

Although, improved communication links through collaboration and `e' enablement could permit SMEs to move towards a more enriched business model, there is evidence that e- business take-up and success in Europe among engineering businesses is low. For instance,

focusing on on-line sales, the eEurope 2004 benchmarking report admits that only 14% of SMEs make on-line sales and in only 7% of SMEs do on-line sales constitute more than 5% of their overall sales. The vast majority of companies still continue to rely on old trusted methods of doing business even though outsourcing to lower cost regions and

countries is a major threat to many engineering SMEs in Europe.

Access to specific competences drives organisations to collaborate with each other. Focusing on the organisational competence, a notion which expresses the key skills and capabilities of an organisation, an ICT based methodology has been developed and tested in this research. The `Competence Profiling Methodology' facilitates collaborative business processes. The methodology enables the discovery of appropriate collaborators for the development and manufacture of complex systems by matching complimentary competences and softer factors.

These ideas were developed and tested within two SME projects in the West Midlands, Autocle@r and Autolean 3, as well as with the DTI funded Manufacturing Advisory

Service _{- West Midlands, a one-stop shop to assist manufacturing SMEs. The results} from these projects were used to develop a practical portal architecture, to help e-enable

engineering SMEs. The resulting West Midlands Collaborative Commerce Marketplace, has over 2000 SME members, has had over 40,000 tenders through the system and over

100 companies are using collaborative spaces to coordinate resources.

A key conclusion of this research is that traditional e-business is poorly suited to engineering SMEs being very standard product orientated. Skills and capabilities are far more generic than end products and focusing on them can support more effective e- enablement of engineering companies. Results from the WMCCM (www. wmccm. co. uk) project confirm this.

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ENGINEERING _{SMEs AND E-BUSINESS} EXECUTIVE SUMMARY

ACKNOWLEDGEMENTS

I would like to thank all who have contributed, in their own unique way, to this engineering doctorate:

1. Dr Jay Bal, my mentor, to whom I am especially grateful for his guidance, advice, patience, and friendship

2. The Sun European Manufacturing Centre of Excellence (SEMCOE) and in particular Dr Vinesh Raja for his effort, assistance, and faith in me when joining the Engineering Doctorate program

3. Bakala Welfare Institute in Greece and the Engineering and Physical Science Research Council (EPSRC) in the UK for giving me the opportunity to learn from the experience of living and studying abroad

4. The one hundred plus companies that participated in Autocle@r and Autolean 3 projects for their information, comments and support during the development of the Competence Profiling Methodology

5. The Manufacturing Advisory Service - West Midlands (MAS-WM) and its partner CONTACT as well as the over twenty-five technology and research institutions for their efforts and support during the development and implementation of the

Expertise Database

6. Dr John Garside from Warwick Manufacturing Group and Dr Dudley Wood from the UK National Business to Business Centre for their kind assistance and support

during our close co-operation in the development of the Expertise Profiling Methodology

7. The Northern Defence Industries Ltd and in particular Gary Scot for his comments and support while testing and validating the Competence Profiling Methodology

8. Mark Swift, Chun-Wea Chang, Alex Gegios, Chris Tsinopoulos, Dimitra Kokotsaki and of course my wife Despina Papaevriviadou for individual support, great patience, and companionship

9. My parents Dimitri and Chrisanthi as well as my brother George and sister Gianna for their amazing support and encouragement during all these years that I have been away from them

10. Many others of my family, friends, and staff at the Warwick Manufacturing Group whose names are deeply engraved in my memory

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ENGINEERING _{SMEs AND E-BUSINESS}

TABLE OF CONTENTS

1. Introduction

1.1 Background

1.2 Research aim and objectives

1.3 Scope of research

1.4 Statement about innovation

1.5 Portfolio structure

1.6 Suggested order of reading

2. Research methodology

2.1 Research phases

3. Engineering SMEs and E-Business

12

13

17

18

20

24

25

29

32

3.1 Engineering SMEs _{- sources of competence} ₃₈

3.1.1 The need for competence 41

3.1.2 Options for increasing competence 42

3.2 Updated Research on E-Business and Partnership selection for SMEs 44

3.2.1 Partner/supplier identification ₄₅

3.2.2 Partner/supplier appraisal and selection 54

3.3 Requirements ₆₆

4. Competence Profiling Methodology (CPM)

4.1 Competence data collection

4.2 Normalising ₇₃

4.3 Making competence information available for e-business 75

4.3.1 Facility functionality ₇₅

4.4 Partnership formulation ₈₀

4.4.1 Ranking companies 85

4.4.2 Method of appraisal 91

4.4.3 Weight estimation 95

EXECUTIVE SUMMARY

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5. Implementation and testing

5.1 Benefits of the methodology

5.2 Further implementation and testing

5.2.1 Advantage West Midlands (AWM)

5.2.2 The Northern Defence Industries (NDI)

5.3 The West Midlands Collaborative Commerce Marketplace (WMCCII) 5.3.1 WMCCM Functionality

5.3.2 Adjustments to CPM

5.3.3 Economic Sustainability

5.4 Expertise profiling: Finding sources of advice for engineering SMEs 5.4.1 Background

5.4.2 Expertise Profiling Methodology (EPM) 5.4.3 Benefits of the methodology.

5.4.4 Issues during implementation

6. Discussion

6.1 Discussion on research methodology

6.2 Theories and practices

101 103 104 106 110 115 116 118 125 128 128 129 133 135 138 139 142

6.3 Meeting the research objectives 144

6.3.1 Inhibitors preventing engineering SMEs e-business adoption 144 6.3.2 Examination of methods of identifying on-line suppliers and partners 147 6.3.3 Proposition of a mechanism to facilitate e-business and enable collaboration 149 6.3.4 Development of appropriate and innovative e-business based methodologies and tools

6.3.5 Field test of the developed methodologies and tools

6.4 Additional lessons learned

6.5 Innovation summary

7. Conclusions

7.1 Recommendations for further work 7.1.1 Enhancements to the CPM

7.1.2 Facilitate other supplier/partner selection activities 7.1.3 Integration with clustering strategy

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EXECUTIVE SUMMARY

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7.1.4 Implementation to other sectors and regions

References

Appendices

Appendix 1 _{Fulfilling EngD requirements}

Appendix 2 _{NDI vacancy adverbs}

Appendix 3 _{Comparison of regional Manufacturing Advisory Services}

Appendix 4 _{The Competence Profiling Questionnaire}

Appendix 5 _{The Competence Profiling Methodology Assessment Form}

Appendix 6 _{Participated by the author WCCM Workshops}

Appendix 7 _{The Associate Profile Form}

Appendix 8 _{The key changes made to the Associate Profile Form}

Appendix 9 _{Further developments on expertise profiling}

Appendix 10 Oakland guides and Knowledge House

EXECUTIVE SUMMARY

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172

185

191

194

197

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207

211

218

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LIST OF FIGURES

Figure 1 EngD portfolio structure 21

Figure 2 Predictions for the amount of trade to be conducted on-line by 2004 34 Figure 3 Example of search for partners in GuiaNet

Figure 4 Example of detailed profile in First Index

35 47 Figure 5 Example of a company's list of manufacturing processes in First Index 47 Figure 6 Example of search in the First Index on-line directory

Figure 7 Examples of First Index tenders

Figure 8 Example of search in the MfgQuote on-line directory Figure 9 Example of a manufacturers profile in MfgQuote

Figure 10 Process of partners selection as proposed by Samadhi and Hoang (1998) Figure 11 Framework of CyberStamping as introduced by Tang et al (2004)

Figure 12 The interface of partnership chain definition Figure 13 Requirements

Figure 14 Keyword searches of key skills

Figure 15 Keyword searches of key manufacturing processes Figure 16 Example of a requirement (dashboard)

Figure 17 Selection of engineering processes Figure 18 Selection of companies

Figure 19 Selection of criteria priority and allocation of values

EXECUTIVE SUMMARY

48 50 52 53 57 62 63 67 78 79 80 84 86 87 Figure 20 Proposed group of companies that could undertake the project and a ranking list

of alternative companies 100

Figure 21 Expressed interest in CPM received from Mitchell Cons Transmissions 105 Figure 22 Utilising the Competence Profiling Facility for the tracked transport industry 108 Figure 23 Utilising the Competence Profiling Facility for the defence industry 112 Figure 24 Hierarchy of manufacturing processes in WMCCM stage 1 partnership search

120 Figure 25 Example of companies and grouping criteria selection in WMCCM stage 2

partnership search 121

Figure 26 Proposed group of companies that could undertake a project and a list of ranked

alternative companies 123

Figure 27 Example of a tender in WMCCM 124

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ENGINEERING _{SMEs AND E-BUSINESS} EXECUTIVE SUMMARY

Figure 28 The MAS-WM matrix for business processes, technologies and general services 131 Figure 29 Supplier selection activities assisted by the Competence Profiling Facility and

the potential for further investigation 154

Figure 30 Components of trust as identified by Afsarmanesh (2005) Figure 31 Five steps to e-business profit

Figure 32 The virtual tour in the Coventry Heritage website Figure 33 Incorporating EPM into CPM

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155 160 167 168

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LIST OF TABLES

Table 1 Features of the positivistic and phenomenological paradigms 26

Table 2 Phases, methodology, and methods utilised in this research 27

Table 3 The supplier selection framework 56

Table 4 Manufacturing system attributes as captured by Samadhi and Hoang (1998) 58 Table 5 Priorities in selecting partners for developed market enterprises 59

Table 6 The three levels of competence defined 75

Table 7 List of criteria for vendor rating employed by Yahya and Kingsman (1999) 88

Table 8 Numerical rating of user preferences 97

Table 9 Example of ratio-scale pair-wise comparison matrix 98

Table 10 The ratio-scale pair-wise comparison matrix for the Competence Profiling Facility 99 Table 11 NDI's perception of the usefulness of the Competence Profiling Methodology (0

= non, 1= low, 2= medium, 3= high) 114

Table 12 Labour costs and main stream of income of CPM in comparison with other

approaches 126

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ENGINEERING SMEs AND E-BUSINESS

LIST OF ABBREVIATIONS

2WM: _{2WestMidlands}

APF: _{Associate Profile Form}

EXECUTIVE SUMMARY

ARICON: _{Assessment of Readiness and Interoperability for Cooperation in}

New Product Development in Virtual Organisations

CEM: _{Centre of Expertise in Manufacturing}

CIM: Computer Integrated Manufacturing

CPF: _{Competence Profiling Facility}

CPQ: Competence Profiling Questionnaire

CPM: Competence Profiling Methodology

DDA: _{Defence Diversification Agency}

DTI: _{Department of Trade and Industry}

e-Business: Electronic Business

ECOLEAD: European Collaborative _{networked Organisations LEADership}

initiative

EDI: Electronic Data Interchange

Engineering SME: Small-Medium Engineering Enterprise

EPM: Expertise Profiling Methodology

GDP: Gross Domestic Product

GOWM: Government Office West Midlands

HEI: Higher Education Institutes

ICT: Information Communication Technology

ILO: Industrial Liaison Officer

IMECHE: _{Institute of Mechanical Engineers}

IP: Intellectual Property

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IPSE: _{Institute for Promotion of Small Enterprises}

MAS: _{Manufacturing Advisory Service}

MAS-WM: _{Manufacturing Advisory Service}

- West Midlands

MDA: _{Mobile Data Association}

NDI: _{Northern Defence Industries}

OEM: _{Original Equipment Manufacturer}

OJEC: _{Official Journal of the European Communities}

ONS: _{Office for National Statistics}

OSI: _{Operational Standard Identification}

RCME: _{Regional Centre for Manufacturing Excellence}

SMS: _{Short Message Service}

WMCCM: _{West Midlands Collaborative Commerce Marketplace}

WMG: _{Warwick Manufacturing Group}

WWW: _{World Wide Web}

XML: _{eXtensible Markup Language}

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ENGINEERING SMEs AND E-BUSINESS

DECLARATION

EXECUTIVE SUMMARY

I, Nikolaos Armoutis hereby declare that all the work presented within this Executive Summary was undertaken personally unless otherwise acknowledged within the text, and that none of the work has been previously submitted for any other academic qualification that has not been authorised by the University.

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CHAPTER 1

1. Introduction

INTRODUCTION

The research described in this document focuses on small-medium sized engineering

enterprises (engineering SMEs), and how they can develop in response to business

pressures using the opportunities provided by the Internet. Studies, such as these carried

out by the European Union's Enterprise Directorate General (EDG, 2004; Perogianni,

2003), have clearly shown that the benefits for Small and Medium Enterprises (SMEs) can

be very significant. The Internet "can help SMEs to access new markets, find new

business partners and benefit from lower prices and increased choice" (Perogianni, 2003:

p5). A report by Cisco has quantified the scale of the benefits that can be achieved. Early

adopter SMEs have experienced increases in revenues of nearly 75% on average, and

reduced costs by 50% as a direct result of their use of Internet technologies (Cisco,

2001 a). Although practical evidence indicates significant benefits are possible, statistics

prove that the majority of SMEs are not profiting from the Internet. For instance, focusing

on on-line sales, one of the means to SMEs to benefit from the Internet, the `eEurope

2004' benchmarking report admits that only 14% of SMEs make sales on-line and in only

7% of SMEs do on-line sales constitute more than 5% of their overall sales (EDG, 2004).

The work conducted for this Engineering Doctorate (EngD) provides a foundation for

engineering SMEs to exploit the benefits the Internet can offer. It recognises that the

current on-line solutions do not address adequately the real needs of engineering SMEs,

nor do they address the trust and confidence issues between engineering trading parties.

Research by PriceWaterhouseCoopers (2002a) has indicated that businesses are using e-

business mainly to communicate more effectively with suppliers they already know. Only

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CHAPTER 1 INTRODUCTION

22 % of companies purchasing on-line choose new suppliers. However, it is increasingly

recognised that gaining full benefit from e-business requires companies to transact with

partners they have never met (PriceWaterhouseCoopers, 2002a; Perogianni, 2003).

Therefore, it is very important for engineering SMEs to exhibit a level of confidence and

trust that will encourage them to be chosen on-line. Suggesting that collaboration is really

the only practical strategy open to SMEs. A mechanism which allows engineering SMEs

to be located and matched on-line by potential customers or partners has been developed.

1.1 Background

Manufacturing has for a ling time been seen as a critical element within the UK economy.

At the forefront of the early industrial revolution, the UK economy has developed a long

tradition in sectors such as motor vehicles, metal products and general engineering. In

1762 Matthew Boulton built a factory in Birmingham which employed more than six

hundred workers and installed a steam engine to run a variety of lathes as well as

polishing and grinding machines. During the same period, in Staffordshire, an industry

developed which gave the world good cheap pottery. There were many success stories in

the UK during this period. These developments had far reaching economic and social

impacts and established the UK at the forefront of the global economy. However, in recent

years the situation has radically altered. Although manufacturing is still significant for the

national economy, most analysts believe there is a substantial gap in manufacturing

productivity when compared to its overseas competitors. Manufacturing makes up a fifth

of the national economy, employs one in seven of the workforce, and accounts for 60% of

the UK's exports. However, surveys suggest that labour productivity is 55% lower than

the US9 32% lower than France, and 29% less than Germany (DTI, 2002a).

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CHAPTER I INTRODUCTION

SMEs have an important role within this setting. Accounting for 99.3% of all

manufacturing companies and 50.8% of the total employment (SBS, 2002), their

prosperity and `well-being' has significant impact on the national economy. Although

selected manufacturing industries, such as oil & gas, and food processing, have strong

international presence, the remaining manufacturing industries score poorly either on a

national or international scale (McKinsey, 2002; O'Mahony and de Boer, 2002; DTI,

2002a; DTI, 2003a). The weak sectors cover the traditional electrical, electronic and

mechanical industries. Improving the productivity and competitiveness of engineering

SMEs is then of national importance. The scale of this task can seem daunting, however it

is not often realised how only a few companies can actually significantly affect the overall

national picture. As Colin Mynottl has identified, only 20,000 innovative SMEs support

1,120,000 other SMEs in the UK. The key task is to support these 20,000 and to increase

this number.

Recognising the significance of engineering SMEs, the UK government developed a

manufacturing strategy to improve the prospects of the sector. Inter-firm collaboration and

the modernisation of the Information and Communication Technology (ICT)

infrastructure have a key role in this strategy (DTI, 2002a). The projects undertaken in this

EngD, though some of them predating the DTI strategy, are aligned with this goal.

' At an IMECHE debate on "What is Successful Innovation" in May 2004 Colin Mynott explained the UK has about 20,000 companies that design and manufacture their own products, 120,000 manufacture components as part of a supply chain, and 1,000,000 provide additional services and support to maintain this manufacture base.

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CHAPTER 1 _INTRODUCTION

In their analysis of the UK economy, Porter & Ketels (2003) view collaboration as a

crucial element in enhancing competitiveness. Collaboration enables SMEs to link their

complementary competences, by joining forces SMEs could bid for larger, higher value

added contracts. Combined they could reach the critical mass of resources needed to

develop and produce larger more complex systems as products and migrate from selling

simple low profit standard parts to selling more value added system solutions. Preiss et al

(1996) has demonstrated that there is almost a linear relationship between the level of

sophistication of a product and financial rewards. They reported a similar correlation

between rewards and communication links with customers and suppliers. Improved

communication links through collaboration and `e' enablement could permit SMEs to

move towards this more enriched business model.

Defined by the UK Department of Trade and Industry (DTI, 2000), e-business "describes

how businesses are using information gathered electronically to improve their business

processes and relationships with suppliers and consumers. This potentially covers all

business areas, such as design, production, operations, customer service, as well as buying

and selling". Although the definition indicates a wide scope for potential ICT

implementations, the majority of current applications focus on facilitation for businesses

that produce standardised products.

Measuring ICT adoption in SMEs, the DTI identified that on average no more than 32%

of SMEs are trading on-line (DTI, 2004b). The most common reason given by UK

business for not ordering or selling goods or services on-line was that the products were

not suitable for on-line purchasing. This is the case for many engineering SMEs. They

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CHAPTER I INTRODUCTION

provide highly customised products or `one-of jobs that cannot be represented by a list of

standard parameters. Standard information such as price, product description, pictures and

drawings, hardly exists, and therefore finding and comparing suppliers based on their

products is extremely difficult. However, the majority of trade on-line directories such as

Applegate (www. applegate. co. uk), only provide contact information or standard product

descriptions. The key question is, what information do engineering SMEs need to provide

in order to be "found" on-line by potential customers or partners. The information

provided must also generate a good level of confidence and trust, something that is very

important in normal business, but of extreme importance in e-business. There is less of a

need for this with "standard products" because these generally have specifications that can

be easily compared.

Engineering SMEs meet customer requirements based on the abilities of their processes

and their skill in operating and pushing them to the limits of their capability. One of the

companies the author visited while carrying out his research, Strata (Flame Cutting &

Fabrications) Ltd., provides an example of how engineering SMEs meet customer

requirements. The company provided flame-cutting services. It had the appropriate skills,

processes, and machinery to cut a range of sheet metal for quality tooling. Although

mainly involved with the automotive industry, Strata were always open to new

opportunities independently of the type of final product and market sector. For instance,

the company had undertaken flame cutting projects for sculptures. It was also reported that

profit margins were significantly better, almost double, in sculpture projects compared to a

typical automotive tooling project.

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Strata illustrates the way many engineering SMEs operate. Although normally regarded as

product providers, their core business is better defined in terms of an engineering

"service" based on their skills, processes and the tools or equipment they employ. This

service may be offered to a specific industry and for a specific range of products.

However, usually the service offered is broader based. Whether automotive machine tool

or visual arts sculpture, there is no difference for many engineering SMEs as the same

technical engineering abilities are required.

The focal point of an engineering company is then the key technical engineering abilities

and not the physical end products. Drawing on the term `competence' to describe these

abilities, a mechanism to enhance confidence and trust in engineering SMEs competences

is introduced in this research.

1.2 Research aim and objectives

With this background, the aim of this research is:

"to develop and implement a mechanism that supports collaboration by enabling reliable

identification, comparison, and combination of engineering SMEs with the right skills,

resources, and culture to tackle new opportunities within an e-business environment. "

This aim is to be achieved by:

1. Investigating _{the inhibitors} _{that prevent engineering SMEs adopting e-business}

successfully

2. Examining the existing methods of identifying on-line suppliers and partners in

manufacturing industry and determining their key strengths and weakness

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3. Proposing a mechanism to enable collaboration for engineering SMEs and facilitate e-

business

4. Developing appropriate and innovative e-business based methodologies and tools

based on identified requirements

5. Field testing and fine-tuning of the developed methodologies and tools through

industrial applications, and in an engineering SME environment in particular

The portfolio of work undertaken has allowed the author to address these areas. This

Executive Summary explains how these objectives have been met.

1.3 Scope of research

Due to their importance to the national economy, discussed in paragraph 1.1, this research

focuses on small-medium sized engineering enterprises (engineering SMEs). Companies

in this sector are manufacturers of engineering products that supply industries such as

automotive, aerospace, rail, white-goods, and mechanical machinery and equipment.

One of the early reports on Small Firms by the Bolton Committee (HMSO, 1971) defines

small companies as "an independent business, managed by its owner or part-owners and

having a small market share". Although generic and not specific in numerical terms, this

definition depicted key distinctive characteristics small companies have such as:

" their small market influence when considered as scattered units

" the key importance the owners have in their day-to-day running and welfare

Over the years a variety of definitions of the term SME have been provided by different

organisations. The UK Companies Act 1985 sections 247 and 249 (HMSO, 2004) and the

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European Commission (EC, 2003) provide the indicative definitions adopted in this

research. The first defines a small-medium company as the one that has a turnover of not

more than £22.8 million, a balance sheet total of not more than £11.4 million and not more

than 250 employees. Similar is the definition provided by the European Commission

where an SME has less than 250 employees and a turnover of not more than ¬50 million

or a balance sheet total of not more than ¬43 million.

Geographically this research is mainly focused on the West Midlands region. The region

is associated with traditional industries such as automotive, general engineering,

jewellery, and ceramics. It contributes 8.2% of the UK's total gross domestic product

(GDP), employing 2.45 million people (GOWM, 2002). Manufacturing industry employs

21.6% of the total population in employment and accounts for approximately 29% of the

region's GDP, the largest share of any region in the UK (GOWM, 2002; DTI, 2002c). Its

significance has attracted government attention especially after the recent rapid closure of

the Rover Group. Due to the recognised vulnerability of the automotive sector, the

government has highlighted the need for modernising and diversifying the economic base.

The UK government has attempted to strengthen the economy through several initiatives

such as "UK online-for-business", university innovation centres, such as the National B2B

centre at Warwick University, and the establishment of Business Links and the regional

Manufacturing Advisory Services. Due to this significance as well as the engineering

relevance, the West Midlands was considered an excellent research field for this

engineering doctorate. The results obtained could also be applicable to other regions with

similar socio-economical characteristics. For example, largely classified as a European

`objective 2' industrial area, West Midlands has socio-economic commonalities with other

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objective 2 industrial European regions and hence the results obtained here have broader

validity.

1.4 Statement about innovation

The core novel features that this research brings in the application of knowledge to the

engineering business environment are summarised in the following two points:

"A _{web-based methodology for finding and appraising engineering SME has been}

developed and tested that focuses on competence rather than products. Web-based

methods such as the one suggested by Camarinha-Matos et al (1999) and even major

e-business adoption methodologies, such as the one proposed by Fingar et al (2000),

are focused on end products and not on the factors that enable engineering companies

to build products.

" The methodology supports collaboration by enabling matching of competences and

suggesting a group of complimentary companies based on user preferences. Other

web-based methods proposed by authors such as Akarte et al (2001) are mainly

focused on ranking and final selection of a supplier. Industrial portals and e-

marketplaces, such as the Supply-On (www. supplyon. com), are limited to company

searching without enabling matching competences and suggesting a group of

companies, virtual organisations, to undertake a project.

1.5 Portfolio structure

Inspired by ancient Athens in Greece, the author's place of origin, the portfolio structure

for this Engineering Doctorate (EngD) is represented by the ancient Greek temple of

Athena (Figure 1). Athena, an ancient Greek goddess of wisdom and craftsmanship,

remains a symbol of knowledge, good reasoning and manufacturing which are all key

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themes to this work. In the ancient Athena temple of Figure 1 the black arrows indicate

the information flow and the colour of the underline matches with the colour of the cover

pages of each of the documents.

" The Personal Profile forms the foundation of the EngD program. It describes the

development of the author's personal competences and the mastery of the required

competencies, achieved through the project work and modules undertaken, is

demonstrated. A summary of personal competences developed including a discussion

on the way the author fulfilled the requirements of the EngD program are provided in

Appendix 1.

21 WAkVV (CK

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" Submission 1- Moving up the Food Chain. This submission describes the early goal of

this research, "To move SMEs up the food chain". It investigates the challenges facing

SMEs, the options available to them and identifies "collaboration" as an important

lever to enable this. An initial overall research question was also proposed. This was:

- `How can engineering SMEs exploit e-business to obtain work and sustain

competitiveness? '

The ideas presented in this submission were generated during the undertaking of an

SME development project in the West Midlands, the `Autocle@r' project. The

Autocle@r project was a £400K project partly funded by the European Regional

Development Fund. Details of the Autocle@r project are provided in section 5-

Implementation and testing.

" Submission 2- Competence Profiling: Enabling Electronic Business for Engineering

SMEs. A mechanism for enabling collaboration through e-business was identified as

extremely important by submission 1. In submission 2 existing methods of finding

sources of supply in manufacturing were examined. From these a new methodology,

the Competence Profiling Methodology (CPM) was developed which, in contrast with

other approaches, highlights what engineering SMEs are able to do instead of just

focusing only what they currently do, i. e. their end products. Applying this

methodology, a semi-automated system for suggesting partnerships based on a range of

hard and soft factors was developed. The ideas developed in this work have been tested

within the Autocle@r project as well as the £200K `Rover Task Force' project,

Autolean 3 (see section 5 Implementation and testing).

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" Submission 3- Expertise Profiling: Finding Sources of Advice for Engineering SMEs.

Building on the success of the work undertaken for the Autocle@r and Autolean 3

projects, a variation of the Competence Profiling Methodology was devised and

applied for finding sources of advice for manufacturing SMEs. The work described in

this submission addressed the requirements of the then newly established

Manufacturing Advisory Service

- West Midlands (MAS-WM), a £3.2 million DTI

initiative to provide manufacturing SMEs with practical help with new manufacturing

technology and best practice (see section 5.4 Expertise profiling: Finding sources of

advice for engineering SMEs).

" Executive Summary. This sets all the submissions in the context of the engineering

SME environment and summarises the achievements and lessons from the work

undertaken. It also provides an opportunity for:

o Describing changes and developments that have occurred since the submitted work

o Emphasising the innovative aspects of the work

o Describing follow on work based on ideas derived in this research

o Viewing the work in hindsight and providing overall conclusions

The portfolio also contains the published papers, a transcript and results for post module

assignments of the taught modules attended by the author. Although these documents

provide significant evidence of contribution to competence development, they are not

always directly related with the project work undertaken which this Executive Summary

concentrates on. More details on them are provided in the `Personal Profile'.

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CHAPTER 1

1.6 Suggested order of reading

INTRODUCTION

The `Executive Summary' followed by the `Personal Profile' are recommended by the

author as the first documents to be read. The suggested order of reading of the

submissions in this EngD portfolio follows the natural flow of the work done (Figure 1).

As evidence of planning and project management, submissions were made at regular

intervals throughout the EngD program. Each piece of project work was submitted into the

portfolio towards the end of each of the key five applied research projects the author

participated in. These five projects were:

1. Autocle@r, discussed in section 5- Implementation and testing

2. Autolean 3, discussed in section 5- Implementation and testing

3. Manufacturing Advisory Service _{- West Midlands (MAS-WM) discussed in}

paragraph 5.4 - Expertise Profiling: Finding sources of advice for engineering

SMEs

4. West Midlands Collaborative Commerce Marketplace functionality definition and

system implementation, discussed in paragraph 5.3 - The West Midlands

Collaborative Commerce Marketplace (WMCCI4)

5. Northern Defence Industries evaluation, discussed in paragraph 5.2.2 - The

Northern Defence Industries (NDI)

... - ₂₄

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CHAPTER 2 RESEARCH METHODOLOGY

2. Research methodology

Born in a family that owned and operated a small clothing manufacturing business, the

author developed interest and empathy towards the engineering SME environment. This

interest and empathy led to him being enthusiastic towards actively researching the

engineering SME environment by engaging himself and developing his own perception

and appreciation of the industrial engineering development culture. It was his belief that

by having an active role within what was being researched would enable him to gain an

insight of the phenomena within the context of real life and therefore develop innovative

and industry applicable solutions. It was also his belief that he would be able to develop a

variety of personal competences, such as teamwork and leadership, which would be of key

significance to his career. This belief reflected the overall research paradigm that this

research was closest to. This was the `phenomenological' paradigm which in contrast to

the other key paradigm, `positivistic', advocates perception of reality through direct

experience (Sherman and Webb, 1988; Hussey and Hussey, 1997).

The adoption of a paradigm has key implications for the research methodology. It

predisposes key features of the research methodology (Hussey and Hussey, 1997). In

Table 1 the key features of the positivistic and phenomenological paradigms are shown. In

addition, although there is no strict categorization, different types of research methods

lend themselves more to one paradigm than another (Hussey and Hussey, 1997; Blaxter et

al., 2001). For instance, in contrast with experimental studies, action and case study

research are regarded as being closer to the principles served by the phenomenological

paradigm.

T 25

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Table 1 Features of the positivistic and phenomenological paradigms (Source: Business Research (Hussey and Hussey, 1997))

Positivistic paradigm Phenomenological paradigm

Tends to produce quantitative data Tends to produce qualitative data

Uses large samples Uses small samples

Concerned with hypothesis testing Concerned with generating theories Data is highly specific and precise Data is rich and subjective

The location is artificial The location is natural

Reliability is high Reliability is low

Validity is low _{Validity is high}

Generalises from sample to population Generalises from one setting to another

The research method and research techniques utilised to support the research paradigm in

each of the research phases are shown in Table 2. In each submission a more detailed

description and justification of the methods utilised is provided.

`Case studies' was the main method employed in this research. According to Yin (1994),

there are three conditions for using case studies:

1. Research questions are of `how' and `why' type, or `what' questions that are

exploratory. These types of research questions are more likely to lead to case studies.

2. The investigator is not required to have control over actual behaviour events.

3. The study focuses on contemporary events.

Considering that the key research question of this research is `how engineering SMEs can

be reliably identified, compared and combined within an e-business environment by

potential customers or partners', the first condition for a case study research is met. This

question is of an exploratory nature which according to authors such as Hussey and

Hussey (1997) and Yin (1994), is aligned with case study research. It leads to the

development of related propositions for further inquiry, such as the functions of a

Competence Profiling Methodology.

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CHAPTER 2 _{RESEARCH METHODOLOGY}

Table 2 Phases, methodology, and methods utilised in this research

Research Phase _Research _Data _Research _Activities

Method _Techniques

Reviewing the _{" Documents} _{" Bibliographical research such as}

field

" Searches on library books, article in journals-

(documented in _{the Internet} _{magazines-newspapers, conference}

submissions: 1, _papers, _governmental _reports,

2, and 3) _{project reports, published statistics,}

electronic databases (e. g. Pro-Quest

Direct, EBSCO), the Internet

" Experts' opinion (e. g. the MAS National Network Developer T.

Boylan)

" Visits to exhibitions, conferences

(e. g. Softworld Supply Chain)

Competence ₂₀ _{Autocle@r " Documents} _{" Bibliographical research to provide}

Profiling _SMEs

" Observations working definition of the term Methodology

" Laboratory `competence' and clarification of

development

work other terms and concepts used in

(documented in _{questionnaires as well as to acquire} submissions: 2) _{skills, such as programming in ASP,}

essential in the development stage

" Programming (website and database development)

Case

" Visits to SMEs

studies _{" Experts' and users' feedback (e. g.}

the creator and organiser of the

IMECHE Awards for Manufacturing

Excellence, Dr J. Garside)

Competence and 20 Autocle@r _{" Laboratory} _{" Bibliographical research}

Profiling SMEs, _work _{" Interviews based on the Competence} Methodology 62 Autolean3 _{" Documents} _{Profile Questionnaire}

testing SMEs, _{" Questionnaire,} _{" Storage of collected data into the}

(documented in _{Manufacturing} _Interviews _databases

submissions: 2, Advisory Service _{" Experts' and users' feedback (e. g. J.} 3 and Executive _{- West Midlands} _{Robson from CONTACT)}

Summary) (MAS-WM),

" Refinements of the Competence Advantage West _{Profiling Methodology}

Midlands,

Northern Defence Industries

Reflecting and West Midlands _{" Commercial spin-offs}

integrating Collaborative _{" Writing submissions, presentations,}

(documented in Commerce _{and publications}

the Executive Marketplace

Summary) (WMCCM)

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(30)

As far as the second condition is concerned, there was no need for control over

behavioural events. Causal relationships are examined mainly in structured experiments

where the researcher systematically and precisely eliminates certain variables or keeps

some variables constant in order to identify any effects on others. In contrast, the author

was seeking to assess the natural behaviour and evaluate the effectiveness and the benefits

of each application. This is linked with Yin's third condition as it indicates a direct

observation and examination of the applications, which could only be made on

contemporary events.

Similar to case studies, action research is based on the assumption that the social world is

constantly changing, and the researcher is part of this change. As described by Hussey and

Hussey (1997), the main aim of action research is usually to enter into a problem an

organisation faces, attempt to bring change, and finally to monitor the results. In this

respect the work undertaken for the MAS-WM could be regarded as action research. The

identified problem was that the existing approaches of searching and finding sources of

expertise and advice for the region's manufacturing SMEs were ineffective. An attempt to

bring change by introducing a new ICT based approach was made and finally the results

of this attempt were monitored and analysed. The work done for the MAS-WM was one

of the three cases when the concept of competence profiling was implemented, and tested.

The Autocle@r, Autolean 3, and MAS-WM projects were experimental type case studies.

In experimental case studies the research examines the issues involved in developing and

implementing new procedures and techniques as well as the benefits gained (Scapens,

1990). This method also, in theory, promotes academic rigor and therefore is regarded

more acceptable by the academic community which some times considers action research

. Ir _{1'CIV: , z! "}

(31)

as a client driven consultancy project (Baskerville and Wood-Harper, 1996; Avison et al.,

1999; Gummesson, 2000).

2.1 Research phases

As shown in Table 2 (page 27), the research undertaken consisted of four phases. The

phases should be viewed as parts of an iterative and concurrent process rather than a

sequential process. They refer to areas of work that received greater emphasis at certain

stages in the process.

The "review of the field" was focused on identifying and analysing the alternative options

for engineering SMEs to `move up the food chain'. Then it was detailed on identifying

and analysing the theories and practices of supplier identification and appraisal. It

provided information and ideas on how companies can be identified and appraised as well

as on what information is required for the effective representation of a company.

Background reading assisted in identifying requirements for each case by looking at the

needs and critiquing what others have done. It also assisted in legitimising the author's

arguments.

After the "review of the field", the Competence Profiling Methodology was developed.

This included:

" Profiling questionnaire development: The design and development of the questionnaire

was based on the method proposed by Wilson and McClean (1994) and supported by

the Department of Education and Skills (DfES). Competence being the main concept to

be measured, a working definition was required. Diverse literature sources discuss the

issue of organisational competence resulting into different perspectives of competence

THE I'\tk ITY i' 29

(32)

definition. A working definition was developed that incorporated the various

perspectives identified.

" Website and database development: A Web-based system has been developed to make

the collected competence information available for e-business use and formulating

partnerships. To ensure a structured approach and consideration of all key aspects of

system engineering, the development has been based on a well validated process

proposed by Professor Sommerville (1995).

At this stage the Autocle@r project provided the author significant access to engineering

SMEs, and allowed him to observe and interact with them. For example, the ability of

engineering SMEs to meet a wide variety of customer requirements based on the key

skills, machinery, and equipment available to them was one of the key observations first

made during that period.

The developed methodology was then tested on eighty two engineering SMEs through

application in both the Autocle@r and Autolean 3 programs. Experts' and users' feedback

was taken into account and further improvements were made. Some of the key

improvements are described in paragraph 5.3 on page 115. In addition, user assessments

were made to capture the perceived usefulness of the methodology. These were performed

with the assistance of Advantage West Midlands (AWM) and the Northern Defence

Industries (NDI) Ltd (see paragraph 5.2 Further implementation and testing).

Further testing of the Competence Profiling Methodology to a different dataset was also

made through its application to the MAS-WM. This enabled assessment of the

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methodology within the advisory sector. Acquiring responses and feedback provided the

author with the opportunity to further assess and develop its effectiveness (see paragraph

5.4 in page 128) and make safer judgements to its applicability to industry.

Finally, the reflecting and integrating stage mainly involved the writing of submissions as

well as the dissemination and testing of the knowledge acquired through publications (see

Appendix 1), presentations and demonstrations either at conferences or to project partners

and users of the methodologies. These demonstrate how the research results relate to

current thinking and how this fits into the knowledge field. This stage also involves some

commercial outcomes reported as a direct result of the work undertaken. Opportunities for

further research are also identified in publications, submissions, and in this Executive

Summary (7.1 Recommendations for further work).

This Executive Summary is structured to reflect on the phases followed in this research.

The following chapter starts by reviewing the key issues that inhibit e-business adoption

by engineering SMEs and will proceed with the examinations of theories and practices of

supplier identification and appraisal.

(34)

CHAPTER 3 _{ENGINEERING SMEs AND E-BUSINESS}

3. Engineering SMEs and E-Business

Although the benefits for adopting e-business are regarded as being significant by the UK

government (DTI, 2004a; DTI, 2004b), UK engineering SME e-business adoption rates

are quite low. Doing business on the Internet promises greater market penetration,

increased customer response, more flexibility, lower costs, increased income, and the

formation of new business avenues (DTI, 2003b; DTI, 2004b). However, less than 10% of

UK manufacturing SMEs business comes through the web (MCS, 2002). As a result of the

interactions the author had with engineering SMEs during the research, as well as through

the examination and analysis of existing solutions for partner and supplier identification

and appraisal, six key issues that hold back e-business adoption were identified:

1. Trust

Many representatives of the engineering companies visited during the `Autocle@r'

and `Autolean 3' projects argued that they were not confident in dealing with

suppliers on-line. Some of them were stating lack of familiarity with on-line

working. Many others felt more confident with their existing traditional methods of

dealing with suppliers. That is mainly working with suppliers that they already know

and trust or have been introduced to by a trustworthy contact. Identifying and even

more selecting suppliers on-line was beyond their imagination. "How would I ever

trust somebody that I have found on the web and I haven't seen, talked, or even been

introduced to? " were among the usual questions that were posed. It became quickly

apparent to the author that trust was the main obstacle for engineering SMEs. Proof

of this belief came at a later stage by a European study (Perogianni, 2003) where it

was clearly stated that trust is an issue posing a major barrier to e-business adoption

(35)

by SMEs. The report recognises that trust matters for all stages of purchasing, from

finding partners to purchasing, settlement and payment.

Handling trust effectively may be enough to convince the on-line technology

"phobic" to learn and familiarise themselves with on-line working. This has worked

in the consumer sector. E-Bay was rated as the most trustworthy company on-line

(Greenspan, 2004), its rating system is key to this perception. Therefore, an

approach that could assist SMEs to identify and select, confidently, competent

suppliers on-line is needed.

2. Product Orientation

Existing e-commerce has a very strong "product" bias; it is based on transactions

concerning products, whether they be insurance policies, vacuum cleaners or electric

motors. This comment applies to not only the Business-to-Consumer (B2C) sector,

but also the Business-to-Business (B2B) sector. The well developed catalogue

capability in e-commerce supported by audio and visual enhancements of the web

assists towards on-line trading of standard products. However, the products that

many engineering SMEs offer are not standardised. They are often `one-off

customised jobs and therefore cannot be represented by a standard list. For example,

Figure 2 shows predictions for the amount of trade in different sectors to be

conducted on-line by 2004. It is clear the variation is mainly accounted for by the

degree of standardisation in the industry. For example, electronic components are

very standardised, whereas `Transportation' and `Mill' products are much more

customised. GuiaNet (at www. guianet. pt) is an example of an on-line directory that

(36)

CHAPTER 3 ENGINEERING SMEs AND E-BUSINESS

focuses on classifying and characterising engineering `items' bought and sold by

companies. GuiaNet (Figure 3) does not focus on the full abilities of the potential

partners.

Electronics ($458B)

Aerospace & Defense ($50.5B)

Chemical/Oil _($76.4B)

Discrete Mfg ($86.4B)

CPG/Pharmaceuticals _($113B)

Apparel/Textile ($13.5B)

Other Discrete Mfg. ($75.6B)

Industrial Equipment ($37.9B)

Transportation Equip. ($51.113)

Mill products ($14.9B)

Figure 2 Predictions for the amount of trade to be conducted on-line by 2004

3. Company Classification

A key assumption about engineering companies and e-commerce is that engineering

companies should be classified by their existing products. Classifications such as the

Standard Industrial Classification (SIC) and the United Nations Standard Products

and Services Code (UNSPSC) attempt to facilitate exploitation of electronic

commerce capabilities by focusing on classifying commodities. It was recognised in

this work however that "products" are an output of the skills and capabilities of an

engineering company. These skills and capabilities are far more generic than the

products. That is, the same company using its existing skills and facilities could

manufacture many variants and new products. The majority of representatives from

the engineering companies visited claimed that they were able to serve a large

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variety of different sectors. Their cupboards were full of representative product

samples. One illustration of this is a well-known case to the West Midlands

manufacturing _community, _{a company} _who for the automotive industry

manufactured seat frames. Key skills and process included the ability to "bend and

join" wire precisely. They have now become the leading World provider of body

piercing jewellery. A product that also requires the skills and capability to "bend and

join, " wire precisely. The profit margins are much higher and they judge the work as

more interesting.

4. E-business Uptake Models

Traditional e-business uptake models such as Cisco's (2001b), Earl's (2000) or

Fingar et al (2000), presented and discussed in paragraph 3.1 (Engineering SMEs -

sources of competence), are generic and require a level of resources not always

available to SMEs. For example, in the second wave of the `three major waves'

model (Fingar et al., 2000), on-line product catalogues are suggested to handle

electronic transactions. As discussed in paragraph 1.1 (Background), end products at

a particular instance in time do not show all that engineering SMEs can really do.

Even more importantly, just having a catalogue on a web site does not ensure that

potential customers will be able to find it. An examination of the search enquiries at

the WMCCM site shows that the product orientated ones arrive mainly from

business directories, such as Applegate, whilst, the process orientated ones arrive

from direct searches via search engines such as Google. This finding further supports

the contention that the current e-business infrastructure is mainly product oriented.

(39)

5. Lack of Comparative Capability Information

The websites provided by many engineering SMEs are often outdated or lack any

detailed, structured information covering their real abilities. The information

available is usually not directly comparative. As a result of this, SME websites are

often of limited use. Evidence of this is the significant "clicking off' of small

businesses over the past few years. Connectivity has fallen by more than 17% in two

years (DTI, 2003c) as SMEs perceive e-business to be of little value. Discussion

with engineering SMEs at this time indicated their main use of the Web was to

conduct research on competitors and potential customers. There are indications that

website deployment has improved (DTI, 2004a). However, the sustainability of this

improvement is not guaranteed as it may be a result of governmental efforts via

funded schemes such as the `support to implement best practice' to increase on-line

business presence.

6. Service Fees and Char es

Although e-marketplaces, such as `Supply-On' (www. supplyon. com), may provide

buyers with more detailed and structured information about potential suppliers,

many SMEs are unable or unwilling to afford registration. For instance, the annual

costs for an SME to register and use Supply-On can be up to 7,920 ¬ (Supply-On,

2005). In addition, the aggregation of purchasing power offered by such buyer

controlled e-marketplaces has raised many concerns among suppliers, who in

particular fear that their margins would be squeezed.

(40)

In order for engineering SMEs and their business partners to gain the benefits of e-

business, a solution that will reduce the barriers outlined above needs to be developed and

this is the aim of the work presented in this document.

3.1 _{Engineering SMEs}

- sources of competence

For e-business the view that engineering SMEs could be seen as sources of competence,

rather than products, was introduced at a very early stage in the research (Submission 1:

Moving Up the Food Chain). This view differs from the traditional view to e-commerce,

which is more focused on end products as discussed in the beginning of this chapter

(points 2 and 3 in page 33). None of the major e-business adoption methodologies for

SMEs really address this issue. There are three major e-business adoption methodologies

(Bal and Blanco, 2002):

" The `three wave model'

Based on observations about what companies have previously experienced while

taking-up the Internet, Fingar et al (2000) have defined three waves of e-business

evolution:

o In the first wave, around 1992, companies developed a brochure type homepage to

obtain web presence

o In the second, after 1996, companies added electronic transaction capability

o In the final wave, from 1999 onwards, companies started using the Internet to

extend the business processes and operation in both sides of the supply chain

The model has been based on observations of what organisations such as Dell

Computers and Amazon have experienced. This does not necessarily apply to the

r! r r'r

(41)

needs of today's engineering SMEs. For example, Dell and Amazon are organisations

where their on-line business model is mainly based on marketing standard products,

such as books and electronic devices, and therefore on-line catalogues have a

straightforward application. This does not apply to engineering SMEs which meet

customer requirements/specifications based on what they are able to do and not on

what their end products are.

9 The `evolviniz the e-business'

Earl (2000) describes a six-stage model for achieving and sustaining e-business:

1. External communication, where corporate information is made available to the

public via a website

2. Internal communication, that is using the internet and www techniques to build

internal communication channels, such as corporate intranet

3. E-Commerce, the ability to buy and sell products on-line

4. E-Business, where e-business is about re-engineering or redesigning business

processes and replace legacy systems to incorporate e-business techniques

5. E-Enterprise, which is about decision-making becoming more informed by

monitoring and analysing in real time information such as consumer behaviour and

operational performance

6. Transformation, where the `e' is dropped and companies are completely part of the

new economy

The evolving e-business model was derived from Earl's (2000) evaluation of what

large corporations and dotcom start-ups have done to evolve. Many engineering SMEs